Stop orders are predominantly used on Binance Futures to help minimize losses and lock in profits using stop-loss and take-profit orders, respectively. When establishing a stop order in Binance Futures, three major aspects must be considered: the stop price (also known as the trigger price), the execution price, and the kind of stop order.
A purchase or sell order is activated at the stop price. You may manage the execution price by selecting the stop order type and either the Last Price or Mark Price as the trigger type.
If a stop-market order is specified, the order will be executed at the best available price in the order book. If a stop-limit order is used, the order will be executed at the limit price or a better price.
Trigger Type: Mark Price versus Last Price
There are two sorts of stop/trigger prices: Last Price and Mark Price. On Binance Futures, the Last Price is the most recent transaction price of a contract, while the Mark Price is the projected fair value of a contract.
Utilizing the Last Price to trigger a stop order guarantees that the stop price is closer to the order's execution price. Yet, it is not a foolproof method of avoiding liquidation because the liquidation price is always the Mark Price.
If you want to prevent liquidation, use the Mark Price as the trigger since it always corresponds with the liquidation price of a futures contract. Unfortunately, this implies that the price at which your stop order is executed may diverge from your trigger price even further.
For example, if you place a stop-limit order, your order may not be expected at all since the Mark Price is the average price and cannot be utilized to complete an order. This is especially true during moments of extreme volatility when the spread between the Last Price and the Mark Price might grow.
In conclusion, utilizing the Last Price to initiate a stop order can enable you to get closer to the execution price. Yet, it does not ensure the avoidance of liquidation. As a result, it is preferable to prevent liquidation by using the Mark Price as the stop order trigger.
Closing Thoughts
Stop Orders are a powerful tool that can help traders navigate the volatile cryptocurrency market on Binance clone script Futures. With three types of stop orders available, traders can choose the one that best suits their strategy and risk management needs. By using stop orders, traders can limit losses and protect profits, which is essential in a market as unpredictable as cryptocurrency. Binance Futures' user-friendly interface and range of tools, including stop orders, make it a popular choice for both novice and experienced traders.
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